Ministers to tell EU that rescue was fair

The government is expected to begin today the process of convincing the European Union authorities that Northern Rock will not have an unfair advantage after being nationalised last month.

In making a submission to the EU, ministers will be meeting a deadline by which it must ask the authorities for approval of state aid for the Newcastle-based lender.

The proposals are likely to show that the Treasury is convinced the taxpayers' £25bn loan to Northern Rock can fall to £14bn by next spring by allowing some of its existing mortgage customers to be lured to other lenders.

The Treasury has already had to convince Northern Rock's rivals that it will not be able to win new business because it is under state ownership. The industry has made clear that it watching the outcome of the process closely.

The issue is also causing concern in Denmark, where banks have complained about a nationalised lender.